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C O N F I D E N T I A L SECTION 01 OF 06 NEW DELHI 002266
SIPDIS
E.O. 12958: DECL: 08/21/2018
TAGS: PRELPGOVPTERMASSOREPKSTCKOMCPARMINPKIR
SUBJECT: INDIA SCENESETTER FOR ASSISTANT SECRETARY BOUCHER
Classified By: Charge d'Affaires Steven White for Reasons 1.4 (B, D)
¶1. (SBU) On behalf of Ambassador Mulford, we welcome your
upcoming visit and offer this snapshot of the bilateral
relationship. Coming only days after the Nuclear Suppliers
Group (NSG) plenary in Vienna, your visit gives us a chance
to gauge where we stand in the NSG process and discuss next
steps necessary to reach a Presidential Determination. You
will also be able to underline the U.S. interest in pushing
forward on the full range of bilateral issues. As you know,
the unprecedented level of U.S.-India collaboration
encompasses everything from defense cooperation to
agriculture and reflects widespread support in both countries
for widening existing ties and building new ones. American
industry's discovery of the opportunities in India have
reinforced a partnership built on a 2.5 million strong
Indian-American community. With plans to double their
investments in India, Microsoft, Cisco Systems, Intel, and
others realize that India has the brain power necessary to
make their firms competitive, especially in the flourishing
Indian market. Visa issuances to Indians have skyrocketed.
India is now the leading non-U.S. destination for National
Institutes of Health research grants, and the largest
supplier of foreign students to U.S. universities. Our
militaries are moving closer together with increasingly
sophisticated joint exercises, shared research and
development, and the potential for important acquisitions
that could create thousands of American jobs while aligning
our countries strategically.
¶2. (SBU) While Indian officials would be loathe to admit
publicly that India and the U.S. have begun coordinating
foreign policies, we are working more closely together than
we ever have, as exemplified by our parallel efforts to
assist Afghan reconstruction and to maintain regional
stability in Nepal. This cooperation reflects a
transformation in India. For many decades, the default
position was distrust and suspicion, but now we see an India
that seeks increasingly to further shared interests. As a
result, the Prime Minister's government -- more than any
previous Indian government -- has set out to align itself
with U.S. policies and practices as the means of emerging as
a global player. Nothing better reflects this commitment
than the Prime Minister's willingness to risk his government
in the July 22 confidence vote over the civil nuclear
initiative. No Indian Prime Minister ever before staked his
government on a foreign policy issue, much less one that
involves strengthening ties to the United States. But
significant obstacles still stand in the way of achieving
this broader vision: the Left parties who quit the PM's
coalition over the nuclear deal will continue to carp from
the sidelines about the U.S.-India relationship in the run up
to parliamentary elections. The United Progressive Alliance
(UPA) government must manage its own old school skeptics
while fending off challenges from the opposition Bharatiya
Janata Party (BJP) and regional parties. While these
political twists and turns will no doubt influence the speed
at which India is prepared to pursue bilateral cooperation,
the important point is that the Indian parliament (and
public) were fixated in an unprecedented manner on India's
relationship with the U.S. for months on end and decided,
finally, to pursue cooperation.
Civil Nuclear Cooperation Initiative
------------------------------------
¶3. (C) The Indian government for the most part shares our
vision of the Civil Nuclear Cooperation Initiative as an
essential part of transforming the overall relationship.
According to the Foreign Ministry, it is India's "priority
one." By the time your visit takes place, the NSG will have
met in plenary session to discuss the India-specific
exception from NSG guidelines. India has continued the
NEW DELHI 00002266 002 OF 006
lobbying of NSG members that began before the IAEA meeting,
and Foreign Secretary Menon and Special Envoy Saran have
departed for Vienna. While there are public expectations
that India will obtain an exception, there have also been
persistent leaks to the press that the GOI could walk away
from the deal if the nuclear "skeptics" in the NSG are
successful in imposing conditions which New Delhi views as
maintaining an unequal relationship indefinitely or that,
even by implication, condition cooperation on Indian
acceptance of the Nuclear Non-Proliferation Treaty or the
Comprehensive Test Ban Treaty. India is looking for some
sign from the NSG that India will eventually be treated as an
equal partner, even if that is not possible yet. During your
visit, you will be able to gauge Indian reaction to the NSG
plenary, review next steps and encourage India to do more
than the bare minimum on its Presidential Determination
commitments. You can expect your interlocutors to ask for
your candid assessment of the prospects for the deal in
Congress, given the short amount of time left in the session.
Regional Issues
---------------
¶4. (C) Under Prime Minister Singh's leadership, the
Government of India is emerging as a responsible leader in
the South Asia region, as well as Asia at large. India
hosted a successful visit by President Karzai in early August
and agreed to chip in a "new" 450 million dollars in
reconstruction aid for Afghanistan (although some of it is to
cover cost overruns). This would be on top of the 750
million dollars India had already declared. As you heard
from Foreign Secretary Menon in Colombo, India encourages
democracy in the region, but is worried by continuing
political instability in both Nepal and Bangladesh and by the
surge in violence in Sri Lanka. On North Korea, New Delhi
did the right thing recently by denying clearance to a
suspicious flight from Pyongyang. India and China have
sought warmer relations by engaging in a strategic dialogue
that separates the contentious border issues from a broader
engagement. Bilateral trade has been growing at about 40
percent annually, but India's large trade deficit with China
has led to worries among Indian businesses. Musharraf's
resignation worries them more, even though public statements
have focused on India's not having a position on Pakistani
domestic politics. National Security Advisor M.K. Narayanan
said even before Musharraf's resignation that India "abhors"
the political vacuum in Pakistan. New Delhi does not know
who's in charge in Pakistan and is worried that extremists
will take advantage of the situation to launch more
cross-border attacks. Anger over the bombing of the Indian
Embassy in Kabul is still fresh and Indians are convinced
Inter-Services Intelligence was behind it. Firing across the
Line of Control is up this year, heightening India's
concerns. Meanwhile, the Composite Dialogue to address
bilateral issues has stalled as New Delhi waits for an
interlocutor. We still diverge with India over tactics
towards Iran and Burma, although we ostensibly share the same
goals. New Delhi was taken aback by Tehran's complaints
about the U.S.-India nuclear deal at the July Non-Aligned
Movement meeting.
Domestic Politics
-----------------
¶5. (C) The election campaign never ends in India because
there is always an important poll just around the corner.
The current political season just kicked into high gear as
national elections and some key state elections are due in
the next few months. Every move by the national and regional
political parties and their leaders is aimed at positioning
themselves for the election. The current Congress Party-led
United Progressive Alliance (UPA) coalition government
staggers into its final few months bruised and battered by a
NEW DELHI 00002266 003 OF 006
series of setbacks in state elections during the last year
and soaring inflation. It managed to slow the rot by
confronting its Left Party allies over the US-India civil
nuclear deal and winning a key July 22 Parliamentary trust
vote. The afterglow of its triumph was short-lived, however,
as it was followed quickly by a series of terrorist bombings
and incidents in Gujarat which left the Indian public
disconcerted. Renewed violence in Jammu and Kashmir has also
raised questions about the UPA's ability to manage national
security issues with a sure hand.
¶6. (C) The opposition Bharatiya Janata Party (BJP), in
contrast, had the wind in its sails after its thumping wins
in state elections over the last year, but suffered a severe
setback in July when it was defeated in the Parliamentary
trust vote. It is impossible to predict at this time which
party will emerge on top in the national elections. But it
is safe to say that that neither the Congress Party nor the
BJP is likely to win a majority on its own and either will
have to forge a coalition with the smaller regional parties
to form a government. The smaller parties will continue to
exert disproportionate influence. While both the BJP and the
Congress support a closer US-India relationship, their
ability to move forward aggressively will be constrained by
the increasing power of smaller parties which have narrower
agendas that frequently do not extend to foreign policy
issues. Nevertheless, the nuclear deal and a closer
strategic relationship with the United States have generated
an extraordinary public debate in India during the last year.
It is unprecedented for a foreign policy issue to so
dominate the domestic Indian political agenda. Indians from
all walks of life were forced to ask themselves whether they
favor closer ties with us. We have won this debate hands
down and, as a result, the US-India relationship has a strong
foundation of which to grow over the coming decades.
¶7. (C) Aside from the civil nuclear deal, the hottest
political issue this summer has been the renewed unrest in
Jammu and Kashmir, which threatens to roll back some of the
Indian government's hard-won gains in restoring peace and
normalcy in the state. It is likely that state assembly
elections, due in October, will be postponed. The tourists
have disappeared and economic activity has slowed. The
disturbances began in June when the government first
transferred 100 acres of public forest land to the Amarnath
shrine to be used to host pilgrims and then reversed itself
when protests against the transfer escalated. Competing
protests, sometimes violent, erupted both in the valley and
in Jammu. The UPA government, which was blind-sided by the
controversy, has so far shown no signs that it has the skills
or the imagination to resolve the situation. The
separatists, especially the hard-liners among them such as
Syed Ali Gilani, are the big winners because they have
reemerged after having been steadily sidelined as peace and
prosperity began to improve. The BJP continues to benefit
from the Hindu backlash to what many perceive as an
unreasonable Kashmiri Muslim attitude towards the Amarnath
pilgrimage. The international community has remained
restrained in its response to the crisis. Any public
statements by U.S. officials on this matter are likely to be
misinterpreted and will only add further fuel to this fire.
Terrorism
---------
¶8. (C) Terrorism and the government's response to it has
increasingly become a political issue as India continues to
rank among the world's most terror-afflicted countries. The
conflict in Jammu and Kashmir has heated up dramatically in
the last few weeks, extreme leftist Naxalites and Maoists in
eastern and central India continue to operate with impunity,
ethno-linguistic tensions in the northeastern states remain
at least on simmer, and terrorist strikes nationwide by
NEW DELHI 00002266 004 OF 006
Islamic extremists take lives and disrupt activity across the
country. The most recent series of attacks in late July, in
Ahmedabad and Bangalore, appear to have been designed to
stoke tensions between Hindus and Muslims. The police have
arrested several suspects in these bombings who are allegedly
connected to the Students' Islamic Movement of India (SIMI).
Indian officials often point to Pakistan's Internal Services
Intelligence (ISI) as being behind many attacks. The extreme
leftists (Naxalites) and ethno-linguistic separatists are in
general home-grown insurgents, although there are some signs
of links to groups in Nepal and Bangladesh. The opposition
has already started to make political hay out of the recent
terrorist attacks, claiming that the Congress-led government
is weak and ineffectual on terrorism. Ambassador Dell
Dailey, the Secretary's Coordinator for Counterterrorism,
will lead a multi-agency delegation at bilateral
counterterrorism talks in Delhi on August 25. We look
forward to your participation in part of those talks.
Economic Ties
-------------
¶9. (SBU) The U.S.-India economic relationship, for decades
narrow and circumspect, is gathering steam and now promises
to be a key driver of our overall bilateral relationship.
The United States is India's largest trading partner and its
largest foreign investor. Two-way trade grew to 42 billion
dollars last year, its highest level ever, with U.S. exports
surging 75 percent. Our publicly stated goal is to double
bilateral trade by the end of 2008, a goal we are well on the
way to meeting. The U.S.-India economic partnership is
creating increasingly complex economic links which are having
a profound impact on our respective economic outlooks in the
21st century. The Indian economy continues to be the second
fastest growing economy after China, even as high global
commodity prices and financial uncertainty are prompting a
moderation in the expected GDP growth rate to 8 percent this
year. India will find it hard to increase or even sustain
these high growth rates in the medium term unless it
undertakes a second generation of critical but politically
difficult reforms. While the government is led by economists
who understand what needs to be done, the economic reform
program was stalled for a long time as the UPA confronted
strong opposition from the Left, BJP and within the Congress
party itself. Since the Left withdrew its support, there has
been speculation that the government might take another run
at these reforms, but election concerns may thwart these
plans in the short run. As it is, lagging growth in
agriculture and a weak infrastructure constrain growth.
Economic liberalization has been slow to come to the
agricultural sector, which supports more than half of the
country's population and yet accounts for only 18 percent of
GDP. The top Indian economic priorities are infrastructure
development and spreading economic benefits into rural India.
Bilateral Issues -- Opportunities to Build Partnerships
--------------------------------------------- ----------
¶10. (C) We wanted to highlight two topics in the bilateral
relationship that merit special focus -- defense and
agriculture. On defense cooperation, the U.S. and India have
conducted a series of joint and service-to-service exercises
of increasing scope and capability since sanctions were
lifted in 2001. Last year saw the first-ever visit by a
Nuclear Aircraft Carrier to India and India,s largest
multilateral naval exercise in modern history, MALABAR 07-02.
Planning is ongoing for MALABAR 08 this October. During
this month alone U.S. Army Special Forces were exercising at
the Indian Counter-Insurgency Jungle Warfare School in the
northeastern state of Mizoram while eight Indian Air Force
SU-30s were taking part in the Red Flag air combat exercises
at Nellis Air Force Base in Nevada. The Indian government
NEW DELHI 00002266 005 OF 006
has also indicated far more interest in acquiring defense
items and building an arms relationship with the U.S.
Defense sales, dormant for over 40 years while India was
essentially a Soviet client, have just started to take off,
with a billion dollar deal for six C-130s finalized in
January as the latest breakthrough. We're hoping to finalize
a separate billion dollar deal for P-8 maritime patrol
aircraft, and both Boeing and Lockheed Martin are competitors
for the estimated 10 billion dollar combat aircraft bid to be
decided in 2009. While there is a real opportunity, India's
slow-rolling on three key defense agreements -- end use
monitoring for military systems with sensitive U.S.
technologies, a logistics support agreement to facilitate
joint military exercises, and a communications agreement to
foster interoperability -- is an obstacle to realizing the
promise of full strategic partnership. Underlining the
importance of coming to terms on these issues will help make
Defense Minister Antony's September 7-10 visit a productive
one.
¶11. (SBU) On agriculture, with the Agricultural Knowledge
Initiative (AKI) ending this year following its 2005 launch
by President Bush and PM Singh, the Indians have told us they
are eager to continue bilateral cooperation in this sector
that employs more than two-fifths of all Indians workers,
most at a subsistence level. The Indians have responded
positively to our concept of a four pillar approach --
productivity, market efficiency, environmental
sustainability, and finance/insurance -- that would
procedurally look similar to our successful Energy Dialogue
with India. However, we will not be able to table our
proposal to India until we can back it up with USG funding.
The Indians will ask you what is the likelihood of US funding
for a bilateral agricultural initiative next year.
¶12. (SBU) On the other significant bilateral issues we want
to discuss -- health, counterterrorism, education and energy
cooperation -- progress has been slow for the reasons you
know well. On any bilateral issue we take up with India, the
wheels of the bureaucracy grind slowly and, at times, our
interest in moving the relationship forward runs up against a
lack of capacity in the Indian government to handle all of
our desiderata as quickly as we would like. But progress can
be made, albeit slowly, and work in these areas is critical
to the relationship because progress in building a
partnership in these sectors will bring home to the average
Indian the value and importance of ties with the U.S.
¶13. (SBU) Despite India's growth during the past fifteen
years, roughly 300 million Indians live on less than a dollar
a day; 700 million Indians live on less than two dollars a
day. An unhealthy population constrains economic growth in
parts of India; some states in northern India possess health
indicators on-par with the poorest countries of sub-Saharan
Africa. According to most recent estimates, India with 2.5
million HIV/AIDS cases is the third highest HIV/AIDS infected
population worldwide, after South Africa and Nigeria. One
quarter of the world's deaths of children and women in
childbirth occur in India. Forty-six percent of children
under 3 years of age are malnourished. Poor health
conditions take an economic toll in various ways, including
continued expenditures on combating diseases that should have
been eliminated and decreased labor productivity and human
capacity. India's education system is not providing the
numbers of people with the necessary skills for the modern
economy because of poor quality primary education and limited
vocational training. The impact of poor basic education and
work force development is that sixty percent of children drop
out before grade 10 and 10 million children are out of
school. Finally, while India's energy consumption has more
than doubled over the last quarter century, half of the
country's population still lacks easy affordable access to
electricity. India realizes the threats these challenges pose
NEW DELHI 00002266 006 OF 006
to its continued economic progress. Indian public and
private sector partners look to U.S. expertise and knowledge,
including through the U.S. assistance program, to direct
resources with appropriate policies, strengthened
institutions and state-of-the-art technologies and expertise.
Management Issues
-----------------
¶14. (SBU) The rapidly expanding scope of the bilateral
relationship has put real pressure on our aging mission
infrastructure. Requests by other agencies to place more
personnel at the Embassy to work on developing ties run up
against space restraints, which will require significant
resources to fix. We're also in need of further management
support positions and consular positions to keep up with
exploding demand, which is also driven by the rapid
transformation of the relationship. While the Mission has
vast real property in country, the GOI has made it clear that
absent positive movement on the New York City tax case
against India, our ability to leverage these resources for
needed facilities and housing, to include obtaining occupancy
permits for our new consulate in Mumbai, will be on hold.
U/S for Management Kennedy and L are deeply engaged on that
issue.
Your Meetings
-------------
¶15. (SBU) We have requested official meetings for you in
New Delhi with Special Envoy Saran, National Security Advisor
Narayanan, Deputy Planning Director Ahluwaliah, and Joint
Secretary Kumar. We are exploring other meetings as well as
a lunch with commentators and experts focused on the Civil
Nuclear Initiative. You will have an excellent opportunity
to gauge where the Civil Nuclear Initiative is heading after
the NSG plenary and underline what needs to be done in order
to bring this to closure. You will also have the chance to
touch on broader themes of cooperation, particularly in the
area of education, that underline the U.S.'s interest in
building a broad strategic relationship.
WHITE